Mid-Atlantic Health Law TOPICS

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Estate Planning Opportunities -- The Window is Closing

Most doctors and hospital, health care and insurance company executives have heard that 2012 offers unique estate planning opportunities under the federal estate and gift tax laws. However, the current laws are due to expire at the end of 2012. If Congress and the President do not take action to extend the current estate, gift and generation-skipping transfer (GST) tax laws, then as of January 1, 2013, we will return to the much harsher wealth transfer tax system that we faced in 2001.

You may hear speculation as to what may occur, including the possibility of a retroactive law in 2013, but the honest answer is that no one knows what will happen.

The following chart compares the estate, gift, and GST tax rates and exemptions for 2012 and 2013:

 

 

2012

2013

Maximum Estate Tax Rate

35%

55%

Maximum Gift Tax Rate

35%

55%

GST Tax Rate

35%

55%

Estimated Tax Exemption

$5,120,000

$1,000,000

Gift Tax Exemption

$5,120,000

$1,000,000

GST Tax Exemption

$5,120,000

$1,400,000
(estimated)

As shown in the previous chart, the ability to make large gifts within the current exemption amounts is scheduled to end after December 31, 2012.

A. Plan Your Gifts in an Orderly Manner

Making gifts of this magnitude should not be a last minute action. It requires a good deal of time to:

1. Analyze the financial implications of your gift (i.e., whether the gift makes sense from an economic/tax standpoint after taking into account various factors such as the expected post-gift appreciation, the income tax basis, and your needs);
2. Plan and implement the logistics (e.g., outright gift vs. gift in trust; qualified appraisals for gifts of interests in closely-held businesses); and
3. Take your own "gut check" - your comfort level with making the gift, even if it makes sense tax-wise.

B. Don't Assume This Isn't Applicable

Here is just one example of why it would be a mistake to think that the 2012 opportunities may not apply to you: you are willing to make a large gift to your children, but you want your spouse to continue to receive the income from the gifted assets. Thus, you assume that you are precluded from using all or a part of your $5,120,000 exemption now.

Your assumption would be incorrect. You can use your gift tax exemption in connection with a gift to a trust, which can be held for the benefit of your spouse (and descendants, if you wish) for the rest of your spouse's life before passing to your children. The trust can be set up in a way that keeps the assets out of your and your spouse's estates.

C. Get the Process Started Now

We suggest that you contact an attorney at Gordon Feinblatt to review these matters to see what opportunities are available and what is appropriate for you.